Digital Nomads & Income Tax: Dos & Don’ts

If you’re a digital nomad, are you liable to submit tax? It’s a topic that’s up for debate, but if you want clarity, best you read this!

digital nomads tax
UNSPLASH Kelly Sikkema

Tax & Income For Digital Nomads

Tax; it’s the only thing associated with the very definition of the word ‘certainty’ other than death.  Like politics and corruption, death and taxes have thus far proven inescapable. Who knows what sci-fi concepts surrounding death might later prove prescient. Frank Herbert wrote about humans in the future using the spice mined on the planet Arrakis to prolong their lives. They probably still paid tax though. In the past, teaching English as a foreign language was something used by many native speakers to see other countries, earn some pretty decent cash and travel during their vacation time – it remains a sought-after occupation. However, as globalism continued, spurred on by the internet and e-commerce, the world proved to truly be a place where people, armed with little more than specific knowledge, a laptop and an internet connection, could work from practically anywhere they desired.  This is essentially what gave rise to the digital nomad.

It’s quite safe to assume that paying tax is something that almost no one enjoys. Even if we don’t like to pay them, it is essential to remain tax-free. There are tools that help us calculate our paycheck, this being a pay calculator that you can use to calculate our salary.Detractors of tax often cite the mere act of buying something as an excuse not to submit, as all legal items of sale are taxed. Thus the act of of purchasing goods and services is viewed as a form of paying tax as the items or services procured from such actions are taxed. The procurement of goods and services is thus seen as contributing to the economy and paying tax. The reality of the matter is that despite the reservations of those who travel the globe and work, tax is still going to be inevitable. There are however those voices in the digital nomad community who claim that paying tax is not imperative. In regrettably dispelling such myths, it’s worth seeing what their claims are about.

Dispelling the various tax scenarios

For many would-be tax practitioners, the act of submitting tax can often be perceived as complex and thus repugnant. Whether you are earning your income from freelancing as a marketer or have specialized in trading stocks, to know all the latest marketing trends or to understand the concept of trading and spread betting, is likely to be more appealing than learning to submit tax. Digital nomads (not all of them) often cite the following tax scenarios that could justify not having to submit:

Live nowhere-pay tax nowhere

There’s a belief amongst digital nomads that if they’re not spending more than 183 days in any place, then there’s no need to pay taxes – theoretically sound but practically not. For instance, if you eventually settle in a country, you might be required to provide evidence of your previous tax returns. Unless you’ve kept documentation or receipts as proof of your nomad status, things are likely to get complicated.

Setting up shop in a tax haven

The next belief common amongst digital nomads is that a company is a separate entity to its owner, hence the notion of setting up shot in a tax haven like Hong Kong or the Isle of Man. There are many companies out there who are head-quartered in these havens or are making use of legal loopholes. Such companies usually can afford to do so and usually employ high-priced lawyers who specialise in such loopholes. Unless you’ve got type of clout that comes with such money, it’s best not to go down this avenue. Plus, your country of residence might ask why a solo outfit is based in a tax haven while all the work happens elsewhere.

Staying in a tax haven

The final common belief amongst digital nomads is that settling in a tax haven is an effective means to paying little to no tax. The key question that then arises is, what about your quality of life? Many of these havens are obscurely located and while you might capitalise on your wealth, what are you giving up in order to do so?

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